Government measures to cool the market have failed to
prevent home prices in Hong Kong, the world’s most expensive
place to buy an apartment, doubling in four years and surpassing
a previous peak in 1997. In contrast with “tepid” income
growth, housing prices surged 23 percent in the year to October,
the HKMA said in the report.

The “overheating property market carries macro-financial
risks to the economy,” the HKMA said. Mortgagors may end up
“in distress when the interest rate returns to a more normal
level,” the monetary authority said.

The International Monetary Fund warned Dec. 12 that
property is “the main source of domestic economic risk” for
the city. At the same time, the odds of a slump that has major
economic and financial consequences is “fairly low in the near
term,” the fund said.

Property Gauge

The Hang Seng Property Index, which tracks the nine biggest
developers listed in Hong Kong, fell 0.1 percent at 10:46 a.m.
local time. The gauge has gained 37 percent this year, compared
with a 22 percent increase in the Hang Seng Index.

Chief Executive Leung Chun-ying, who took over in July, has
imposed extra taxes and tightened mortgage lending. Hong Kong’s
interest rates track those of the U.S. because of the city’s
currency peg.

The economy faces “downside risks, particularly for the
external environment,” the report said. “The latest reading of
our in-house composite index of leading indicators also points
to continued soft growth in the months ahead.”

Hong Kong’s economy is set for its weakest annual expansion
since the global financial crisis as the European sovereign debt
crisis damps global trade. The government in November cut its
estimate for full-year growth to 1.2 percent from an August
projection of a range of 1 percent to 2 percent.